The impact of the pandemic on Olympic advertising
After a year of virtual events, the 2020 Tokyo Olympics are finally taking place, a year late, amid much debate.
With rising coronavirus disease (COVID-19) cases in Japan, many people and organizations have voiced both concerns and criticism; according to data analytics and consulting firm Kantar, 63 percent of people in the US, for instance, are interested in watching the games, but 53 percent think they should be postponed or canceled.
The Summer Olympics, among the world’s premier sporting events, generates millions in advertising revenue. The Tokyo Olympics are likely to produce $2.25 billion in advert revenue for live broadcasts alone — a more than 20 percent increase from the 2016 Rio Olympics — according to Kantar.
Although brands should exercise caution around advertising given the rising number of COVID-19 cases and consumer sentiment around the games, much of it was already committed to prior to the pandemic. NBC, the official US broadcaster, stated that it had already sold $1.25 billion in advertising by March 2020.
However, Japanese companies including Panasonic, Toyota, and Fujitsu distanced themselves from the games last month.
They and many others did not send executives to the opening ceremony, whilst Toyota also canceled all Olympic-related advertising in Japan.
Arab News spoke to Stewart Morrison, managing director of FirmDecisions MEA, about what it means for brands to pull out of their media contracts.
How does Toyota’s decision to pull out of advertising affect media contracts for future sporting events?
Advertising by brands in conjunction with sponsorship or events activity is becoming a smaller part of the marketing budget, mainly due to it being a difficult advertising medium to measure success in, in contrast to digital advertising.
There are, however, industries that continue to undertake sponsorship and event activity, such as the automotive industry where event activations are the best way for their consumers to see, touch and feel the products.
Advertisers sponsoring these types of events usually will have their own additional media advertising activities, incorporating permission to use the logos in that advertising. Cancelation of the sponsorship contract will also mean that a brand cancels its own media investment activities.
Long before the Olympics, media contract cancelation clauses have been tested to their fullest during the pandemic, when brands canceled media buying activities on a large scale globally.
However, for the foreseeable future, the event and sponsorship industry will likely be in a state of flux with event organizers constantly being unsure of whether their events will go ahead whilst the pandemic is still hanging around. This, in turn, will give advertisers the upper hand and a stronger case for a penalty-free exit clause in their agreements.
But, not all media sponsorship agreements are the same: Some are short term one-off partnerships, others like the English Premier League are multi-year partnerships that require considerable investments in infrastructure development. It’s one issue for a brand to cancel their partnership with a sporting event to support the will of the people, but equally, if those community initiatives are canceled then the advertiser is in a very difficult position. They will also be wondering how any action they take will be viewed in different countries.
What’s the right procedure to follow when a brand wants to pull out of an event? Can they renegotiate their contract?
There are usually two agreements advertisers will have in place when sponsoring events like the Olympics. The sponsorship agreement between the advertiser and event owner will give the advertiser branding rights to the events, referees, the stadiums/venues, Olympic-related marketing collateral such as adverts, use of event logos, possibly naming rights to trophies, etc.
Separately, the advertiser will likely have its own media agency contract to buy media and show its own product-related adverts, such as the latest products, and during the games they will add Olympic-related campaigns to their marketing plans.
There will always be cancelations of events for a variety of reasons; event organizers naturally want as much money upfront as possible to cover their costs whilst advertisers know only too well the risks involved in events being delayed or not going ahead. Besides pandemic-related issues, security, safety, (and) weather among others can lead to an event being canceled.
Contracts can be onerous in their interpretations about what happens when an event is canceled, and so it is the responsibility of each party to protect themselves as best as possible with insurance, staggered payments, penalties and/or return of any payments.
It is not in the interests of the organizer or brand to enter protracted costly legal negotiations unless one of the parties was trying to exit a costly multi-year agreement without reason. From an organizer’s perspective, for events like the Olympics, there are few brands with big enough investment and a strategic plan to align themselves to such an event so it would not serve as a deterrent to force a brand to continue. A mutually agreed separation is best all around.
With COVID-19 regulations easing around the world, physical events are becoming more common. What do event organizers and brands need to keep in mind?
Besides the natural considerations of health and safety, they need to consider current government policies, the actions those governments can take at very short notice, and the potential impact of the event not going ahead.
For a brand, that is going to mean the strongest possible exit clauses and retrieval of all invested money in the agreement. Event organizers will not have the upper hand in these negotiations in the near term as, quite simply, the events will not go ahead without the brand’s money.
There will be an imbalance in negotiating power for the foreseeable future as a legacy of COVID, and event organizers should seek to insure themselves appropriately, as the Wimbledon Tennis Association did in 2020.
Featured in Arab News.